THE chief executive of Royal Bank of Scotland, which last week reported the highest profits ever made by a UK bank, is understood to have been paid £3.5m in 2003.

Fred Goodwin's salary for the year, details of which have not yet been published, is thought to be nearly £1m more than the £2.58m he received in 2002.

The jump is thought to be the result of a huge bonus Mr Goodwin received for the year under the group's incentive plan, which was put in place following RBS's takeover of NatWest to reflect the size and complexity of the new group.

It is the first time that the plan, which was approved by shareholders at an annual general meeting in 2001, has been included in his remuneration package.

During 2002 Mr Goodwin received a basic salary of £832,000, and total bonuses of £1.7m.

But under the terms of the incentive plan, he is able to earn a bonus of up to 200 per cent of his salary providing the bank out-performs all of its peers, including HSBC and Barclays.